Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CIRCLE STAR ENERGY CORP. (1439971) 10-Q published on Sep 15, 2014 at 12:30 pm
Reporting Period: Jul 30, 2014
A reclassification has been made to prior year comparative consolidated financial statements to conform to the current year presentation. This reclassification had no material effect on previously reported results of operations or financial position. The Company reclassified amounts related to a Net Profits Interest previously included as a component of Other Income (Expense) to a net against Crude Oil and Natural Gas Sales.
In January 2013, the Company entered into two Participation agreements, whereby the Company initially became the operator of two wells in Trego County Kansas. As of July 31, 2014 the Company is the operator of four wells located Trego, County Kansas. From time to time advances from working interest partners which consist of cash calls received from our working interest owners net of costs incurred on respective wells may be included in cash on our consolidated balance sheet. As of July 31, 2014 we had no advances from working interest partners.
The 10% convertible notes became due on February 8, 2013 in the principal amount of $2,750,000. In January 2014 the Company paid a total of $1,000,000 cash, each of the two noteholders receiving $500,000. Of the total amount paid $515,000 was allocated to principal on the notes ($257,500 for each note) and $485,000 was allocated to interest ($242,500 for each note). On February 28, 2014, the Company entered into new note agreements with the two noteholders. The amended and restated note agreements, each in the amount of $1,155,000, accrue interest at 12% per annum and mature on December 31, 2014. The new notes are convertible into shares of the Company’s common stock at $0.75. The new notes are collateralized by a security interest in the crude oil and natural gas properties held by JHE. The Company has maintained the right to continue selling interests in assets held by JHE provided that 70% of the proceeds from any sale by JHE be applied to the outstanding principal and accrued interest related to the amended and restated notes. In connection with the new note agreements which extend the term of the notes through December 2014 and increased the interest rate on the notes to 12%, we agreed to issue 5,000,000 shares of our common stock to the noteholders and in connection therewith we recorded a debt discount of $50,000. The Company at the election of the Chief Executive Officer has retained the right to vote these shares and we have retained the right to re-purchase any or all of these shares at a price of $0.15 per share for six months from the date of grant. In addition we issued to each of the noteholders 2,500,000 warrants to purchase our common shares at $0.05 per share beginning on February 15, 2015. The Company has retained the right to call the warrants any time within the first six months from the date of issuance at $0.10 provided that we repay a minimum of $500,000 in principal on each note. In connection with the issuance of the warrants we recorded a discount of $38,294. The discount related to the issuance of these warrants is being amortized over the remaining term of the notes. In evaluating whether this transaction should be accounted for as a debt modification or extinguishment the Company performed the two step evaluation prescribed in ASC 470-50 and concluded that the transaction should be accounted for as a modification as: (1) the present value of cash flows including non-cash consideration paid did not change by greater than 10% of the carrying amount of the original debt instrument immediately prior to the modification or exchange; and (2) the fair value of the embedded conversion option did not change by greater than 10% of the carrying amount of the original debt instrument immediately prior to the modification or exchange.
As of July 31, 2014, the remaining unamortized portion of the debt discount related to the amended notes amounted to $41,920. Accrued interest as of July 31, 2014 and April 30, 2014 was $134,750 and $65,450, respectively.
Crude oil and natural gas production. Production for the three months ended July 31, 2014 totaled 2,909 BOE (32BOE/d), compared to 3,294 BOE (36BOE/d) in the prior year period, a decrease of 385 BOE or 12%. The decrease in production in the 2015 fiscal period is the result primarily of the conveyance of certain royalty interests during the fiscal year ended April 30, 2014. Subject to commodity prices, which could impact drilling activity, we expect production to increase during the remainder of the 2015 fiscal period.
General and administrative. Our general and administrative expenses (“G&A”) decreased $226,600 or 44%, to $289,420 for the three months ended July 31, 2014, from $516,020 for the three months ended July 31, 2013. The decrease in G&A was primarily due to lower share-based compensation and reduced legal expense and accounting fees. For the remainder of the fiscal year 2015, we expect G&A to remain reasonably stable with slight decreases as our share based compensation expense should continue to decrease compared to the prior period.